Ludwig von Mises identifies the source of the disruption of the world monetary order as the failed policies of governments and their central banks (1934)

In 1952, the Austrian economist, Ludwig von Mises (1881-1973) argued that the disruption of the world monetary order was attributable to the policies of governments and their central banks:

The people of all countries agree that the present state of monetary affairs is unsatisfactory and that a change is highly desirable… The destruction of the monetary order was the result of deliberate actions on the part of various governments. The government-controlled central banks and, in the United States, the government-controlled Federal Reserve System were the instruments applied in this process of disorganization and demolition. Yet without exception all drafts for an improvement of currency systems assign to the governments unrestricted supremacy in matters of currency and design fantastic images of superprivileged superbanks… The inanity of all these plans is not accidental. It is the logical outcome of the social philosophy of their authors.

Monetary Policy and the Present Trend Toward All-round Planning

The people of all countries agree that the present state of monetary affairs is unsatisfactory and that a change is highly desirable. However, ideas about the kind of reform needed and about the goal to be aimed at differ widely. There is some confused talk about stability and about a standard which is neither inflationary nor deflationary. The vagueness of the terms employed obscures the fact that people are still committed to the spurious and self-contradictory doctrines whose very application has created the present monetary chaos.

The destruction of the monetary order was the result of deliberate actions on the part of various governments. The government-controlled central banks and, in the United States, the government-controlled Federal Reserve System were the instruments applied in this process of disorganization and demolition. Yet without exception all drafts for an improvement of currency systems assign to the governments unrestricted supremacy in matters of currency and design fantastic images of superprivileged superbanks. Even the manifest futility of the International Monetary Fund does not deter authors from indulging in dreams about a world bank fertilizing mankind with floods of cheap credit.

The inanity of all these plans is not accidental. It is the logical outcome of the social philosophy of their authors.

Money is the commonly used medium of exchange. It is a market phenomenon. Its sphere is that of business transacted by individuals or groups of individuals within a society based on private ownership of the means of production and the division of labor. This mode of economic organization—the market economy or capitalism—is at present unanimously condemned by governments and political parties. Educational institutions, from universities down to kindergartens, the press, the radio, the legitimate theater as well as the screen, and publishing firms are almost completely dominated by people in whose opinion capitalism appears as the most ghastly of all evils. The goal of their policies is to substitute “planning” for the alleged planlessness of the market economy. The term planning as they use it means, of course, central planning by the authorities, enforced by the police power. It implies the nullification of each citizen’s right to plan his own life. It converts the individual citizens into mere pawns in the schemes of the planning board, whether it is called Politburo, Reichswirtschaftsministerium, or some other name. Planning does not differ from the social system that Marx advocated under the names of socialism and communism. It transfers control of all production activities to the government and thus eliminates the market altogether. Where there is no market, there is no money either.

Although the present trend of economic policies leads toward socialism, the United States and some other countries have still preserved the characteristic features of the market economy. Up to now the champions of government control of business have not yet succeeded in attaining their ultimate goal.

About this Quotation:

We continue our exploration of Liberty Fund’s “Library of the Works of Ludwig von Mises” in the middle of a very serious banking collapse. Mises wrote his great work on money and credit in 1912, its first English translation took place in 1934, and a second edition was published in English in 1952. In the 40 years between editions, Mises had witnessed the First World War and the inflation and economic collapse which followed, the German hyperinflation, the Great Depression, the Second World War, and the Chinese hyperinflation. In the light of these events he unequivocally lays the blame at the door of the government: “The destruction of the monetary order was the result of deliberate actions on the part of various governments. The government-controlled central banks and, in the United States, the government-controlled Federal Reserve System were the instruments applied in this process of disorganization and demolition.” The cause of these failed policies, in his view, is a bad economic theory about how the economy works: “The inanity of all these plans is not accidental. It is the logical outcome of the social philosophy of their authors.” Mises hoped that his life work would provide a new economic theory which would never permit another serious collapse to happen again. 56 years after he wrote those words it did happen again.